Eastern European manufacturers have been forced to further cut their production due to the critical gas shortage in the Balkan states.

"For sure there will be a verifiable effect ... as one day's loss of industrial output is the equivalent of 4 to 5 percent of the monthly figures... It could be drastic," said investment chief of Budapest Fund Management Company, Peter Duronelly.

Russia cut its gas exports to Europe via Ukraine on January 1 as part of a payment dispute, accusing Kiev of siphoning off the gas destined for Europe -- an allegation Ukraine has dismissed.

Some Balkan countries have been forced, in turn, to ask manufacturers to minimize consumption to allow gas allocation for public use. Many of the large factories in the EU, particularly in Germany, are shut or working at less than normal capacity.

One of the companies effected is Zaklady Azotowe Pulawy, Poland's largest fertilizer maker, which may cut output by 10 percent.

This comes as Czech Prime Minister Mirek Topolanek discussed the resumption of gas flow to Europe in a January 10 meeting with his Russian counterpart, Vladimir Putin.

The EU has decided to send an observer to Ukraine to monitor transit operations upon a Russian request. Moscow, however, has not yet restored its exports to Ukraine but is expected to do so later on Sunday.

Washington has criticized the Kremlin for cutting its gas supplies; the issue has been employed to encourage a new push to prepare the ground for the Nabucco pipeline project.

"This episode underscores the critical need to diversify sources of natural gas, as well as other energy supplies," said US State Department spokesman Sean McCormack.

The Nabucco pipeline is seen as an alternative for the EU to import gas from countries other than Russia.

RM/AA